Treasuries headed for a third weekly decline before a Conference Board report today forecast to show a gauge of the economic outlook rose the most in eight months, adding to signs the recovery is gaining pace. Benchmark yields were near a seven-month high as economists said other reports next week will show gross domestic product grew more than earlier estimated and existing home sales rose. Ten-year yields have climbed more than a percentage point from this year’s low in October as growth signs have damped demand for safety. Congress passed an $858 billion bill to extend tax cuts, sparking concern the government will need to sell more debt to service the budget deficit. “Treasuries are an enormous sell,” said Adam Carr, an economist in Sydney at ICAP Australia Ltd., a unit of the world’s largest interdealer broker. “The U.S. is making no effort at reining in fiscal profligacy and the Federal Reserve is funding that by printing money. Amidst all this, the U.S. economy is actually pretty good.” The 10-year note yielded 3.42 percent as of 6:14 a.m. in London, according to data compiled by Bloomberg. The 2.625 percent security due November 2020 traded at 93 3/8. The yield has risen 10 basis points since Dec. 10, set for the longest stretch of weekly gains since the period ended Sept. 10. The rate climbed to 3.56 percent yesterday, the highest since May 13. Benchmark 10-year yields may increase toward 4 percent by the first quarter of next year, Carr said. GDP Growth The U.S. economy grew 2.8 percent in the third quarter from a year earlier, quicker than the 2.5 percent estimate issued last month, the Commerce Department will say Dec. 22, according to a Bloomberg News survey. Purchases of existing homes rose to an annual rate of 4.71 million in November from 4.43 million the prior month, the National Association of Realtors will report the same day, a separate Bloomberg survey showed. Economists forecast the Conference Board will say today its gauge of the outlook for the next three to six months climbed 1.1 percent in November, after gaining 0.5 percent in each of the previous two months. The House voted 277-148 for final passage on the tax-cut agreement, accepting the deal that President Barack Obama negotiated with congressional Republicans. The tax-cut plan extends through 2012 all Bush-era tax reductions on income, capital gains and dividends. It continues expanded unemployment insurance benefits through 2011, reduces payroll taxes by 2 percentage points during 2011 and lets businesses write off 100 percent of capital investments between Sept. 9, 2010, and Dec. 31, 2011. Obama agreed on the plan with Republicans on Dec. 6. Increased Deficit House Speaker Nancy Pelosi of California, who wasn’t part of final negotiations on the measure, said she was troubled by the cost of the agreement. “I salute President Obama for getting in the bill what is in there,” she said. “I’m sorry for the price that has to be paid by our children and our grandchildren to the Chinese government to pay for the increase in the deficit that the Republicans insisted upon.” Record-low bond yields in the global market are “susceptible to a sudden reversal,” the Bank of England said in its Financial Stability Report released today. An “abrupt snap back” in bond yields may destabilize the market as happened in 1994, the bank said, referring to a bond sell-off when the prospect of rising inflation led the Federal Reserve to begin tightening monetary policy. ‘Extended Period’ Former Fed Chairman Alan Greenspan increased borrowing costs six times in 1994, taking rates to 5.5 percent from 3 percent. Treasuries handed investors a 3 percent loss as a result, the first annual decline in a quarter century. U.S. policy makers on Dec. 14 retained a commitment to keep the benchmark rate low for an “extended period,” holding the target for overnight lending between banks at zero to 0.25 percent, where it has been since December 2008. They also maintained a $600 billion program of debt purchases under so- called quantitative easing. The Fed will buy $1.5 billion to $2.5 billion of Treasuries maturing between August 2028 and November 2040 today to help cap borrowing costs, according to its website. BNP Paribas SA, the world’s biggest bank by assets, increased its forecast 10-year yields, predicting they will climb to 3.75 percent by the end of 2011 and reach 4.6 percent a year later. “QE2 is a commitment to create inflation and, among other things, should exert upward pressure on 10-year yields,” analysts led by Paul Mortimer-Lee, London-based global head of market economics at BNP, wrote in a report yesterday. “In the near-term, we believe the sell-off is overdone and will partly reverse during the first quarter.” Ten-year yields will rise to 3.55 percent by the end of next year, according to a Bloomberg survey of financial firms with the most recent forecasts given the heaviest weightings. To contact the reporter on this story: Candice Zachariahs in Mumbai at czachariahs2@bloomberg.net. To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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